The ability to own a stake in a privately held car dealership lures some general managers away from employment with publicly held auto retailers.
The public dealership groups typically offer their general managers stock options or grants - not an interest in a specific dealership.
Sid DeBoer, CEO of publicly held Lithia Motors Inc. in Medford, Ore., told Staff Reporter Donna Harris that general managers are better off investing in a publicly traded stock.
What's wrong with owning a 25 percent interest in a dealership?
It's not always 25 percent. It can be as low as 10 percent. The current market price is determined by negotiations. It is difficult to figure out what that value is. General managers who want to leave or retire may be forced to sell the stake back to the dealer at a discount.
Why would the dealer discount that stake? Don't general managers sign a contract promising them fair market value?
No one wants to buy a minority position in a dealership that is controlled by someone else. The only market (for that minority interest) is the dealer. If the dealer does not want to sell out, he is in control. If the manager is forced to get an appraisal, that interest would be discounted at least 50 percent. There are lawsuits over this in which general managers get experts to say how much that minority interest is worth.
Isn't there any way the general manager can obtain fair market value?
Not if the general manager is forced to return (the stake) early. If the dealer sells the store so that the dealer and general manager go out together, then the manager will get full value. I would never take a minority position and work for somebody. There are rare exceptions where it works out, but you put yourself in an indentured position.
You may e-mail Donna Harris at [email protected]